What Do Surging Nickel Prices Mean for Vale and BHP Billiton?

Nickel prices have surged more than 50% this year, but are miners seeing the benefits?

May 15, 2014 at 4:29PM

Nickel prices, which were under tremendous pressure last year due to oversupply of the metal amid tepid industrial demand, vaulted above $20,000 per ton at LME in the preceding week after the Brazilian mining giant, Vale (NYSE:VALE) decided to suspend nickel production activities at one of its facilities. On Monday, nickel prices surged another 8%. Nickel prices were battered in 2013, however they are up more than 50%, so far this year. The sharp rise in nickel prices is mainly due to supply concerns. In addition, nickel buyers and steel producers in China and Japan are scurrying to build up the stocks of both the refined metal and nickel ore, which has further strengthened prices. The likes of Vale, BHP Billiton (NYSE:BHP), and Norilsk Nickel (NASDAQOTH:NILSY) will benefit from this trend.

Vale's production suspension and concerns over long-term supplies
Earlier this month, Vale halted production at its Goro nickel mining and processing facility located at New Caledonia. Officials said that the plant witnessed an acid leak, which contaminated a nearby river. Local authorities, which found the leakage 'very serious' in nature, immediately asked the plant to suspend production. According to the Company's spokeswoman, Vale is now waiting for the local authorities to review the situation. Although the plant has a production capacity of only 60,000 metric tons, fears of acute shortage have rattled everyone given the fact that the nickel market is already expected to run into a deficit in 2015 following Indonesia's decision to ban nickel ore exports.

Morgan Stanley expects a deficit of 60,000 tons in 2015 following a surplus of 70,000 tons in 2014 and 173,000 tons surplus in 2013.

Nickel buyers stockpiling, prices soaring
As I noted in a previous article Macquarie Bank estimates that Indonesia's decision to ban nickel ore exports will cut the global supply by 25% or 482,000 tons. Accordingly, both major nickel consumers, China and Japan, have been stockpiling nickel ore since February, fearing supply cuts.

Not surprisingly, the metal jumped 25% by April due to supply concerns even as Goldman Sachs last month estimated that the shortfall could push the metal prices toward $20,000 per ton level.

Well, it didn't take very long for nickel to reach $20,000 per ton. Three-month contracts on the London Metal Exchange crossed this level last week for the first time in more than two years. On Monday, the three-month contract rose as high as $21,468 a ton.

China and Japan have been stockpiling both refined metal and iron ore contracts, a fearing supply squeeze in the long run. China, which has just enough raw nickel inventories to last till the end of the year, has been importing large amount of both refined nickel and ore to support higher seasonal demand.

Nickel ore imports from the Philippines have also increased substantially. According to Reuters, prices of nickel ore from the Philippines have more than doubled after Indonesia banned ore exports from mid-January. However, while the Philippines is a viable sourcing alternative, its low-grade ore will push up production costs for Chinese nickel pig iron smelters. In addition, the country's ore production capacity is only 500,000 tons a month. In 2013, Indonesia had exported 45 million tons of high grade ore to China.

Stronger prices to benefit Vale, BHP
Vale, which is one of the major producers of nickel, is expected to benefit from stronger nickel prices. Vale recently noted that it expects prices to keep trending upward into coming quarters, given that Indonesian ore export ban is expected to go on for the foreseeable future. Indeed, the stronger nickel prices will help the company offset some of the weakness in the iron ore market.

BHP Billiton will also benefit from stronger prices. BHP is looking to offload its nickel assets and robust outlook for prices will certainly help the company fetch a higher valuation.

Say goodbye to 'Made-in-China'?
The Economist compares this disruptive invention to the steam engine and the printing press. Business Insider says it's "the next trillion dollar industry." And everyone from BMW, to Nike, to the U.S. Air Force is already using it every day. Watch The Motley Fool's shocking video presentation today to discover the garage gadget that's putting an end to the Made In China era... and learn the investing strategy we've used to double our money on these 3 stocks. Click here to watch now!


Varun Chandan Arora has no position in any stocks mentioned. The Motley Fool owns shares of Companhia Vale Ads. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

1 Key Step to Get Rich

Our mission at The Motley Fool is to help the world invest better. Whether that’s helping people overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we can help.

Feb 1, 2016 at 4:54PM

To be perfectly clear, this is not a get-rich action that my Foolish colleagues and I came up with. But we wouldn't argue with the approach.

A 2015 Business Insider article titled, "11 websites to bookmark if you want to get rich" rated The Motley Fool as the #1 place online to get smarter about investing.

"The Motley Fool aims to build a strong investment community, which it does by providing a variety of resources: the website, books, a newspaper column, a radio [show], and [newsletters]," wrote (the clearly insightful and talented) money reporter Kathleen Elkins. "This site has something for every type of investor, from basic lessons for beginners to investing commentary on mutual funds, stock sectors, and value for the more advanced."

Our mission at The Motley Fool is to help the world invest better, so it's nice to receive that kind of recognition. It lets us know we're doing our job.

Whether that's helping the entirely uninitiated overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we want to provide our readers with a boost to the next step on their journey to financial independence.

Articles and beyond

As Business Insider wrote, there are a number of resources available from the Fool for investors of all levels and styles.

In addition to the dozens of free articles we publish every day on our website, I want to highlight two must-see spots in your tour of fool.com.

For the beginning investor

Investing can seem like a Big Deal to those who have yet to buy their first stock. Many investment professionals try to infuse the conversation with jargon in order to deter individual investors from tackling it on their own (and to justify their often sky-high fees).

But the individual investor can beat the market. The real secret to investing is that it doesn't take tons of money, endless hours, or super-secret formulas that only experts possess.

That's why we created a best-selling guide that walks investors-to-be through everything they need to know to get started. And because we're so dedicated to our mission, we've made that available for free.

If you're just starting out (or want to help out someone who is), go to www.fool.com/beginners, drop in your email address, and you'll be able to instantly access the quick-read guide ... for free.

For the listener

Whether it's on the stationary exercise bike or during my daily commute, I spend a lot of time going nowhere. But I've found a way to make that time benefit me.

The Motley Fool offers five podcasts that I refer to as "binge-worthy financial information."

Motley Fool Money features a team of our analysts discussing the week's top business and investing stories, interviews, and an inside look at the stocks on our radar. It's also featured on several dozen radio stations across the country.

The hosts of Motley Fool Answers challenge the conventional wisdom on life's biggest financial issues to reveal what you really need to know to make smart money moves.

David Gardner, co-founder of The Motley Fool, is among the most respected and trusted sources on investing. And he's the host of Rule Breaker Investing, in which he shares his insights into today's most innovative and disruptive companies ... and how to profit from them.

Market Foolery is our daily look at stocks in the news, as well as the top business and investing stories.

And Industry Focus offers a deeper dive into a specific industry and the stories making headlines. Healthcare, technology, energy, consumer goods, and other industries take turns in the spotlight.

They're all informative, entertaining, and eminently listenable ... and I don't say that simply because the hosts all sit within a Nerf-gun shot of my desk. Rule Breaker Investing and Answers contain timeless advice, so you might want to go back to the beginning with those. The other three take their cues from the market, so you'll want to listen to the most recent first. All are available at www.fool.com/podcasts.

But wait, there's more

The book and the podcasts – both free ... both awesome – also come with an ongoing benefit. If you download the book, or if you enter your email address in the magical box at the podcasts page, you'll get ongoing market coverage sent straight to your inbox.

Investor Insights is valuable and enjoyable coverage of everything from macroeconomic events to investing strategies to our analyst's travels around the world to find the next big thing. Also free.

Get the book. Listen to a podcast. Sign up for Investor Insights. I'm not saying that any of those things will make you rich ... but Business Insider seems to think so.

Compare Brokers